SBC Takes a Step "Back" to Traditional Pension

January 24, 2005 (PLANSPONSOR.com) - In an unusual
move, SBC Communications Inc. is reportedly phasing out its
cash balance and another hybrid pension plan covering
management employees in favor of a more traditional pension
plan arrangement.

SBC adopted the cash balance plan in 1997 following the
acquisition of another telecommunications company already
offering a cash balance plan, according to Business
Insurance.
The firm later continued another pension hybrid plan, this
one a pension equity plan, when it acquired Chicago-based
Ameritech in 1999.

Now SBC is freezing those plans, and management
employees’ future pension benefits will be earned under a
more traditional plan design, according to the Business
Insurance report.
SBC decided to offer only that plan design because it
“wants to focus the value of the management pension benefit
toward long-service employees,” a spokeswoman told BI,
according to the report.

Earlier this year IBM announced that it was closing off
its controversial cash balance plan to new hires, offering
them an enriched 401(k) instead (see
“Blue” Moves”
).
Cash balance designs were introduced in the 1980s as an
alternative to traditional pension plans, which tend to use
a final average pay formula in calculating benefits.
Cash balance plans tend to use a career average pay formula
which, in the absence of special adjustments, can hurt the
retirement income of older workers who are close to
retirement when their company makes the switch.

Issues related to the treatment of pension balances at
conversion have proven to be controversial, especially the
conversion experience of
IBM
(see also
Off Balance
).
More recently, Bank of America (BOA) employees sued the
giant banking company over its cash-balance pension plan,
in a lawsuit that alleged that BoA relied on the plan as
part of an “arbitrage scheme” designed to boost the bank’s
profits (see
Bank of America Slapped with Cash Balance Lawsuit
).

However, the courts have been split on the issue – and
by some measures, courts have supported the calculations
employed in such programs more often than not (see
Tootle Do?
).
Moreover, the vast majority of employers that have embraced
the design have done so in a way that has been
well-received by most workers (see
One Bad Apple
).